Financials

Financial Highlights

MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Results of Operation as of 9M 2018 versus 9M 2017

Ayala Land, Inc. (ALI or “the Company”) has sustained its growth momentum in the past nine months of 2018, posting a net income after tax (attributable to equity holders of ALI) of P20.77 billion, 17% higher than P17.81 billion in the same period in 2017, while consolidated revenues (composed of real estate revenues and interest and other income) reached P119.68 billion, 21% higher than P98.93 billion of the same period of last year driven by the consistent growth of its property development and commercial leasing segments. EBIT (Earnings Before Interest and Taxes) margin was maintained at 31%.

Business Segments

The details of the performance of each business segment are discussed as follows:

Property Development. This includes the sale of residential lots and units, office spaces and commercial and industrial lots in the Philippines and operations of MCT Bhd, Ayala Land’s consolidated subsidiary based in Malaysia. Total revenues from Property Development amounted to P83.05 billion, 22% higher than P67.86 billion last year.

Residential. Revenues from the sale of residential lots and units and MCT BHd’s operations reached P65.07 billion, 17% higher than P55.70 billion last year, driven by new bookings and project completion.

Ayala Land Premier (ALP) registered revenues of P20.26 billion, 26% higher than P16.09 billion last year due to higher bookings from The Courtyards at Vermosa, Dasmarinas, Cavite and Park Central North Tower at Makati CBD, Metro Manila (MM) and higher completion of The Suites at BGC, Taguig City, MM.

Alveo recorded revenues of P22.12 billion, 8% higher than P20.39 billion last year given higher bookings from Orean Place Tower 1 at Vertis North, Quezon City, MM and Travertine Tower at Portico, Pasig City, MM.

Amaia generated revenues of P5.06 billion, 23% higher than P4.11 billion last year as a result of higher bookings and completion of Amaia Skies Shaw Tower 1 in Mandaluyong City, Cubao Tower 2 in Quezon City, Capitol Central South in Bacolod, Negros Occidental and Amaia Scapes in General Trias, Cavite. BellaVita meanwhile reached revenues of P851 million, more than double in value from P424 million in the previous year.

The average GP (Gross Profit) margin of horizontal projects slightly decreased to 43% from 44% due to the mix of units sold while for vertical projects, it improved to 37% from 35% due to ALP’s Park Central North Tower, Alveo’s High Park Tower 2 and Avida Towers Asten Tower 3.

Office for Sale. Revenues from the sale of office spaces reached P6.86 billion, 2% higher than P6.71 billion last year due to new bookings from One Vertis Plaza in Vertis North and The Stiles Enterprise Plaza East Tower in Circuit Makati and completion of Park Triangle Corporate Plaza and Alveo Financial Tower. The average GP margin of offices for sale registered lower to 35% from 40% previously given lack of higher margin inventory.

Commercial and Industrial Lots. Revenues from the sale of commercial and industrial lots reached P5.62 billion, 16% higher than the P4.84 billion posted last year due to higher lot sales in Arca South, Taguig City, Alviera in Porac, Pampanga, Ayala North Point in Talisay, Negros Occidental, Seagrove in Mactan, Cebu and Azuela Cove in Davao City. Gross profit margins from Commercial and Industrial lots increased to 44% from 33% due to higher margin commercial lots in Arca South, Alviera and Lio, and industrial lots in Alviera and Cavite Technopark.

International.MCT Bhd recognized revenues of P5.51 billion from the sales and the completion progress of its projects in Cybersouth, an integrated development in Southern Klang Valley, and Lakefront, a residential project in Cyberjaya.

Ayala Land launched P81.75 billion worth of residential and office for sale projects in the past nine months of 2018.

Commercial Leasing. This includes the operation of Shopping Centers, Office Buildings and Hotels and Resorts. Total revenues from Commercial Leasing amounted to P25.06 billion, 14% higher than P22.00 billion last year.

Shopping Centers. Revenues from shopping centers reached P14.04 billion, 12% higher than P12.50 billion previously due to the higher contribution of new malls such as Ayala Malls Vertis North and Cloverleaf in Quezon City and Feliz and The 30th in Pasig City and the strong performance of Greenbelt in Makati City and UP Town Center in Quezon City and the improved average rent of Glorietta in Makati City. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) margin slightly decreased to 65% from 66% due to the lower margins of newly-opened malls.

The average monthly lease rate registered at P1,063 per square meter (sqm) while same mall rental growth registered at 6%. The average occupancy rate for all malls is 88% and 94% for stable malls.

Last July 2018, Ayala Malls Circuit Makati with 52 thousand sqm of GLA (Gross Leasable Area) was opened. This brings the total GLA of Shopping Centers to 1.81 million sqm as of September 30, 2018. Subsequent to this, the company also opened One Bonifacio High Street in BGC with a total of 20 thousand sqm. This brings the total GLA of Shopping Centers to 1.83 million sqm as of October 31, 2018.

Offices. Revenues from office leasing reached P5.35 billion, 15% higher than P4.67 billion last year due to the stabilized occupancy of its newly opened offices, Vertis North Corporate Center in Quezon City, Circuit Corporate Center in Makati and The 30th Corporate Center in Pasig and the higher average rent of stable offices. Office Leasing EBITDA margin was maintained at 91%.

The average monthly lease rate registered at P758 per sqm. The average occupancy rate for all offices is at 94% and 95% for stable offices. Last September 2018, Bacolod Capitol Corporate Center, with 11 thousand sqm of GLA was opened. This brings the total Office Leasing GLA to 1.03 million sqm as of September 30, 2018.

Hotels and Resorts. Revenues from Hotels and Resorts and air transport subsidiary AirSWIFT reached P5.68 billion, 18% higher than P4.83 billion last year due to the higher occupancy and average room rate of Seda Vertis North in Quezon City and Seda Capitol Central in Bacolod and the improved performance El Nido resorts. Average REVPAR (revenue-per-available-room) of all hotels decreased by 3% to P3,493 per night and increased by 2% to P8,392 for all resorts. Meanwhile REVPAR of stable hotels increased by 7% to P4,315 per night and 16% to P11,125 for stable resorts. Overall EBITDA margin improved to 29% from 27% due to higher occupancy.

The average room rate of all hotels is P4,991 per night and P12,647 for all resorts. Meanwhile the average room rate of stable hotels is P5,568 per night and P16,635 for stable resorts. The average occupancy rate of all hotels registered at 70% and 66% for all resorts, 77% for stable hotels and 67% for stable resorts.

A total of 209 rooms were added into the portfolio with 42 rooms in Lio Dormitel completed in July and 53 rooms in Seda Lio Palawan and 114 rooms in Seda Ayala Center Cebu opened last August. This brings the total number of rooms in operation to 2,618 as of September 30, 2018.

Services. This is composed mainly of the construction business represented by Makati Development Corporation (MDC), property management, represented by Ayala Property Management Corporation (APMC), and power services companies such as Direct Power Services, Inc. (DPSI), Ecozone Power Management, Inc. (EPMI), and Philippine Integrated Energy Solutions, Inc. (PhilEnergy). Total revenues from the Services business amounted to P54.43 billion, 6% higher than P51.30 billion last year.

Construction. Revenues from Construction reached P51.41 billion, 3% higher than P49.72 billion last year due to the increased order book of projects from Ayala Land Group.

Property Management. APMC and power services companies registered revenues of P3.02 billion, 91% higher than P1.58 billion last year due to the higher number of managed properties from completed projects.

Blended EBITDA margins of the Services business slightly declined to 9% from 10% due to project mix.

Equity in Net Earnings of Investees, Interest, Investment and Other Income

Equity in net earnings of associates and JVs registered at P608 million, 20% lower than P758 million in the previous year due to the consolidation of MCT Bhd. Meanwhile, interest and investment income increased to P4.99 billion, 19% higher than P4.19 billion last year due to higher interest income from accretion. Meanwhile, other income reached P996 billion, 27% higher than P782 million last year, mainly as a result of the sale of MCT Bhd.’s One City Properties, an integrated mixed-use development located in USJ 25, Subang Jaya and eCity Hotel located within the said development.

GAE (General and Administrative Expenses) registered at P5.95 billion, 17% higher than P5.09 billion of last year. This resulted in a slight improvement in the GAE ratio to 5.0% from 5.1% last year.

Interest expense, financing and other charges was at P7.81 billion, 22% higher than P6.40 billion as a result of higher interest expense and financing charges.

Project and Capital Expenditure

Ayala Land spent a total of P77.9 billion in capital expenditures as of September 2018. 42% was spent on the completion of residential projects, 23% on the completion of commercial leasing projects, 12% for land acquisition, 12% for estate development and 11% mainly for MCT Bhd. and Prime Orion Philippines, Inc., and other businesses.

Financial Condition

The Company’s balance sheet continues to be solidly positioned to support its growth plans.

Cash and cash equivalents, including short-term investments and UITF investments classified as FVPL, stood at P27.23 billion resulting in a current ratio of 1.24:1.

Total borrowings registered at P182.13 billion which translated to a debt-to-equity ratio of 0.88:1 and a net debt-to-equity ratio of 0.75:1.

Return on Equity registered at 16.2% as of September 30, 2018.

Project and Capital Expenditures

End-September 2018

End-December 2017

Current ratio 1

1.24:1

1.18:1

Debt-to-equity ratio 2

0.88:1

0.91:1

Net debt-to-equity ratio 3

0.75:1

0.77:1

Profitability Ratios:

Return on assets 4

5.42%

5.07%

Return on equity 5

16.17%

16.09%

Asset to Equity ratio 6

2.94:1

2.99:1

Interest Rate Coverage Ratio 7

5.8

6.0

1 Current assets / current liabilities
2 Total debt/ consolidated stockholders’ equity (Total debt includes short-term debt, long-term debt and current portion of long-term debt)
3 Net debt/ consolidated stockholders’ equity (Net debt is total debt less cash and cash equivalents, short term investments and financial assets through fvpl)
4 Annualized Total Net income / average total assets
5 Annualized Net income attributable to equity holders of ALI / average total stockholders’ equity attributable to equity holders of ALI
6 Total Assets /Total stockholders’ equity
7 EBITDA/Interest expense

There are no events that will trigger direct or contingent financial obligations that are material to the company, including any default or acceleration of an obligation.

There are no material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the company with unconsolidated entities or other persons created in 2018.